BENEFITS & COMPENSATION INTERNATIONAL TOTAL REMUNERATION AND PENSION INVESTMENT

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1 BENEFITS & COMPENSATION INTERNATIONAL TOTAL REMUNERATION AND PENSION INVESTMENT

2 Compliance Considerations for Expatriate Health Plans Mark Holloway J.D. Senior Vice President Director of Compliance Services Lockton Benefit Group Kansas City A More Complex Puzzle for Coverage Once upon a time, if a company wanted to offer its expatriate employees a global healthcare plan, it was a simple matter. The easy button approach involved offering coverage to all expatriates, regardless of home or host countries, under one global insurance policy. Such plans have been available for nearly 40 years through several global insurance companies. Fast forward to 2014 and the landscape is quite different. As our global economy has matured so have expatriate assignments and governments have become better at appropriately integrating globally mobile employees into national health initiatives. Today, a variety of regulations and laws in key markets around the world add layers of complexity and compliance that global employers should carefully consider in their delivery of expatriate healthcare insurance to international assignees. Throughout this section of the Report we will make reference to the United States health reform law which affects a large number of expatriate plans, as well as other specific regulations in major world markets. Robert Boyd, Director Legal and Compliance, GeoBlue, comments: Right now the US Affordable Care Act is a good example of how local regulations change and stay in flux. The industry practice of writing groups that include expats, third country nationals and key local nationals produces complex regulatory scenarios that challenge simple assumptions about how health insurance eligibility rules should be written. Even as new regulations present challenges, the overall ability of expatriate insurers to provide global benefits and healthcare access around the world remains intact. Regulations may slightly alter the way coverage is provided to expatriates of varying home and host countries, or may require slight adjustments in levels of benefits. However, an employer s expatriate health plan design can still be relatively consistent around the globe, and at this juncture, the white glove services typically offered with expatriate plans are not affected by regulations. The impact of US health reform and an increasing number of other regulations has implications for account structure and policy provisions in order to accommodate all applicable compliance considerations. US COMPLIANCE CONSIDERATIONS Some of the most notable compliance considerations are specific to plans that cover US citizens and residents. For any employer with expatriates outbound from, or inbound to, the USA ( inpatriates ), there are several laws that prescribe the coverage offered under a USbased policy. For many years, laws including ERISA *, COBRA and HIPAA have mandated certain policy provisions and members rights for most plans covering US citizens and residents. With the launch of the Patient Protection and Affordable Care Act (PPACA, known informally as Obamacare) there are new factors to consider for employers offering coverage to their US expatriates or inpatriates. These considerations encompass responsibilities and tax consequences for the individual and the employer, and impose requirements on insurers. Patient Protection and Affordable Care Act The PPACA reforms were created with the primary aim of increasing access to healthcare and health insurance for Americans who might otherwise not have the ability to obtain coverage. Certainly those on corporate expatriate assignments in or outside the USA are not typically on the margins of access to healthcare. However, expatriates and their employers do have their own set of needs and concerns which the federal agencies have taken into consideration as the specifications of PPACA have been released. As many human resources managers become accustomed to working within the new paradigm of PPACA, careful context needs to be added for the special circumstances of expatriates. PPACA mandates that, by January 1, 2015, most employers must offer qualifying and affordable coverage to their full-time employees. The law s insurance reforms mandate changes to health insurance coverage to meet certain minimum requirements, and will subject health insurers and employers to new taxes and fees. The Individual Mandate For employers who do not provide expatriate medical insurance, and instead have expatriates procure their own coverage, attention should be paid to PPACA s individual mandate and how expatriates and inpatriates will be affected. PPACA includes an individual mandate that requires most US taxpayers to have health insurance that qualifies as Minimum Essential Coverage (MEC) beginning in US taxpayers who do not maintain health insurance coverage that qualifies as MEC under the law will be subject to a shared responsibility payment when they file their taxes which is the greater of: a percentage of their household income that is over the tax filing threshold, which will be 1% for 2014, 2% for 2015 and 2.5% thereafter; and a flat dollar amount assessed on each taxpayer and any dependents, the annual flat dollar amount per uninsured person being US$95 for 2014, US$325 for 2015, and US$695 for 2016 and beyond, subject to a family cap at 300% of the annual flat dollar amount. The law designates several categories of health coverage as MEC that will satisfy the individual mandate. * Employee Retirement Income Security Act of 1974 Consolidated Omnibus Budget Reconciliation Act of 1985 Health Insurance Portability and Accountability Act of

3 Those most applicable to expatriates include: government-sponsored programs (for example, Medicare, Medicaid, CHIP * and TRICARE ); coverage under an employer-sponsored major medical plan (including a self-funded plan or any insured plan offered in the small or large group market within a US state), meaning that coverage under a US-based expatriate health plan would meet the individual mandate for a US citizen who lives abroad; and coverage under an individual health insurance policy purchased within a state. The individual mandate applies to US citizens and legal US residents, but not to people who are unlawfully present in the USA or non-resident aliens. Employers will need to carefully weigh the applicability of the individual mandate to their expatriates. Some important exemptions may apply to expatriates. For example, certain individuals will be deemed to have MEC that satisfies the individual mandate regardless of whether they actually have coverage, such as: residents of US territories for at least 183 days during the calendar year (Puerto Rico, U.S. Virgin Islands, American Samoa, Guam and the Northern Mariana Islands); and US citizens who live overseas for the entire calendar year or for at least 330 days within a 12-month period, with US citizens working abroad who do not meet these criteria being subject to the individual mandate unless another exception applies. As noted above, coverage under a US-based expatriate health plan would meet the individual mandate for a US citizen who lives abroad. The question is: will health coverage provided by a non-us insurer also qualify? On October 31, 2013, the US Department of Health and Human Services (HHS) further clarified that group health insurance issued by a non-us carrier is considered MEC for a month if the covered person is physically absent from the USA for at least one day of the month. This coverage also qualifies as MEC for an individual who is physically present in the USA for an entire month if the coverage provides health benefits within the USA while the individual is on expatriate status. This rule appears to be designed to cover US expatriates who are in the USA on furlough or home leave; it would not apply to US inpatriates. The insurer or plan sponsor must notify citizens and nationals covered under the program that it qualifies as MEC, and the insurer and plan sponsor must also comply with yet undefined US tax reporting obligations that will apply in HHS can choose to recognize other coverage, including health coverage provided by a foreign government, as MEC. The final regulations outline the procedural requirements that apply for HHS to make the determination as to whether coverage qualifies as MEC. The Employer Mandate Many expatriates will have medical coverage offered via their employer which makes the employer mandate element of PPACA a primary focus. Under PPACA, most employers will have to offer their full-time employees qualifying and affordable coverage beginning in 2015, or risk penalties if these individuals obtain a tax credit for purchasing coverage through a state or federal public insurance exchange. A separate penalty applies to employers who do not offer any health coverage to at least 95% of their full-time employees. Let us examine the first component of this requirement which focuses on full-time employees working a requisite 30 hours per week. For expatriates, hours worked outside the USA (foreign source income) are ignored regardless of the residency or citizenship of the employee. Consequently, the employer mandate will not apply to US expatriates on permanent assignment overseas. However, US inpatriates would be considered as any other US employee. In addition, coverage under an expatriate health plan (US-based or foreign) would disqualify the individual from purchasing coverage through a public insurance exchange (thus rendering moot the employer mandate penalty). The second component of the employer mandate to address is the penalty incurred by the employer if an employee obtains a premium tax credit to purchase coverage on a public insurance exchange. For foreign nationals working in the USA, in order to purchase coverage through a public insurance exchange and potentially receive a tax credit, such inpatriates must meet all of the following criteria: be a US citizen, US national or non-citizen lawfully present in the USA; be reasonably expected to remain in the USA for the entire period for which enrollment is sought (presumably this means the remainder of the calendar year); not be covered by employer-sponsored MEC; and have family income at or below four times the US federal poverty level (generally, US$94,200 for a family of four in 2013 dollars). The combination of these criteria will make it difficult for foreign nationals in the USA to qualify for tax credits for any coverage purchased through a public exchange. Consequently, it is unlikely their employer would be penalized for failing to offer inpatriates qualifying and affordable coverage. That employer penalty only applies to the extent that a full-time employee receives a tax credit through a public insurance exchange. Even if an inpatriate or expatriate could apply for coverage with one of the public exchanges, * Children s Health Insurance Program healthcare program serving uniformed service members, retirees and their families worldwide For further information, please see Furlough Programs for US Employees clever solutions or tricky traps? by Timothy M. Holly and Josiah R. Wolcott, B&C International, September

4 the level of coverage offered is not likely to meet the employee s expectations for coverage outside the USA. Expatriate Transitional Relief HHS has granted some expatriate health plans a temporary exemption for plan years beginning on or before December 31, Under this transitional relief, an expatriate plan is defined as: an insured group health plan with respect to which enrollment is limited to primary insureds who reside outside of their home country for at least six months of the plan year and any covered dependents, and its associated group health insurance coverage. In order to qualify as an expatriate plan, it must also comply with pre-ppaca legal requirements, such as mental health and substance abuse parity. Under the transitional relief, qualifying expatriate plans do not have to comply with the following PPACA rules: prohibition of annual and lifetime dollar limits on essential health benefits, maximum waiting periods of 90 days, maximum out-of-pocket limits for in-network care, rigorous claim appeal procedures that apply to nongrandfathered plans, coverage of dependent adults up to age 26, prohibition of preexisting condition exclusions, prohibition of most coverage rescissions, minimum medical loss ratios, no cost-sharing requirements for in-network preventive services under non-grandfathered plans, and distribution of a PPACA-compliant summary of benefits and coverage and 60 days advance notice of material modifications. Even with such transitional relief, the primary US-based expatriate insurers have adopted the majority of these requirements, particularly those specifying levels of coverage and policy provisions. The transitional relief does not exempt expatriate programs from the excise tax on high-value plans in 2018 (the Cadillac tax ) or the health value reporting requirement if an expatriate receives a US IRS Form W-2. With respect to the health reform law s taxes and fees, the rules do not consistently apply to expatriate coverage (see TABLE 1 below). Impact of PPACA on International Plans It is important to note that the HHS definition of an expatriate plan does not include plans covering local nationals, or plans that provide coverage for employees whose assignment outside of the USA is shorter than six months per plan year. Further, the agency guidance is not clear whether the transitional relief/exemption applies if coverage is issued by a foreign insurer. We continue to monitor the development of this legislation and how it will ultimately affect plans that cover expatriates specifically for employers offering healthcare coverage to expatriate employees, employee benefits consultants providing guidance to employers, or the insurance companies that underwrite these plans. Currently, my firm recommends coverage for US expatriates and inpatriates be offered via a US-issued expatriate policy that complies with the new legislation. PLAN COMPLIANCE IN GLOBAL MARKETS In many countries around the globe, government regulators are tightening requirements related to whether medical insurance for expatriates must be offered through locally-licensed ( admitted ) insurance companies. In some countries, in order to comply with local laws, healthcare plans must provide specific coverage and meet minimum requirements. The growing number of laws and regulations in various countries has made it more difficult but not impossible for multinational employers to offer a consistent expatriate healthcare plan. Sheldon Kenton, Senior Vice President of Global Employer Sales, Cigna, comments: The international compliance landscape is becoming more complex as governments around the world are embarking on healthcare reforms. TABLE 1 Tax Health Reform Taxes and Fees and their Impact on Expatriate Coverage Exemption for expatriate plans Patient-Centered Outcomes Research Institute ( ) Yes, there is an exemption for insured and self-funded plans designed to primarily cover employees residing and working outside the USA (inpatriate groups are not exempt) A person is considered a US resident if the most recent address on file with the plan is within the USA or its possessions (Puerto Rico, U.S. Virgin Islands, etc.) Transitional reinsurance ( ) Health insurance fee (2014 and beyond) Cadillac tax (2018 and beyond) Yes, for fully-insured expatriate plans that qualify for transition relief (see above) No exemption fee applies for any US health risk Applies both to fully-insured and self-funded expatriate plans 3

5 TABLE 2 Types of Healthcare Coverage for Expatriates and their Families Option Summary Pros Cons Homecountry plan Employees and their dependents remain on their home-country plans Administrative ease for HR Administrative difficulties for employee. Home-country plan may not cover employees and dependents effectively (or at all) outside of home country. Benefit limitations or exclusions may apply Host-country plan Employees and their dependents are enrolled in a health plan in the host country Expatriate receives the same coverage as local hires often seen in localized expatriate packages In some countries, local coverage (social and/or supplemental/private) may not be available to expatriates. Host-country plans may exclude coverage (e.g., preventive care, maternity and chronic conditions) that the employee may have had in his/her home country. Preexisting conditions may be excluded. Having only host-country coverage will leave gaps in coverage when employees are back home, or when they travel to other countries Home- and host-country plans Enrollment under both homeand host-country plans Offers consistent coverage with local employees in each location and retention of home-country coverage for medical expenses while on home leave Same cons apply as described above for host-country plans. In addition, this approach may be expensive and require duplicate administration Global plan (past) All expatriates (regardless of home and host country) are placed on a consistent global expatriate plan Consistent coverage for all expatriates. One plan for HR to administer. Tailored benefits and member services designed for employees working outside the home country Member services typically are centralized, have 24/7 access, have a global network of providers, and are generally sensitive to local requirements and norms, with some limitations Global plan (present) All expatriates (regardless of home and host country) are placed on a consistent global expatriate plan, with local compliance requirements encompassed within the plan through a global insurer Consistent and compliant coverage for all expatriates. Tailored benefits and member services designed for employees working outside the home country Same as immediately above While PPACA in the United States is currently receiving much of the press, health insurance reforms and subsequent regulations are taking shape around the world with varying degrees of complexity. These changing dynamics complicate employer-sponsored health plans for multinational companies, international insurers and globally mobile employees. One trend that we, at Cigna, are seeing more and more frequently is the requirement that expatriates are covered by a locally issued / locally regulated plan. These requirements have led to the development and expansion of local partnership arrangements or joint venture relationships which then allow us to solve these complex issues for our clients and customers. Healthcare coverage can be offered to expatriates and their families in one of four ways: home-country plans, host-country plans, home- and host-country plans, or global expatriate plans. Each approach comes with pros and cons, thanks to complex compliance considerations. Therefore, employers should carefully consider the merits of each approach before making a decision (see TABLE 2 above for a summary of these approaches). A COMPLIANT GLOBAL EXPATRIATE PLAN Even with increasing legislation around the world impacting expatriate health plans, it is still possible to leverage a single insurance carrier to offer a consistent expatriate benefits program, while meeting local compliance requirements. Typically, the program will have a core policy (based in the USA, Guernsey, Isle of Man, Bermuda, etc.) with underlying local policies where required by law that provide a compliant conduit to satisfy compliance concerns but that 4

6 do not negate the global policy. In some countries, while the core policy may be acceptable, administration through a local insurer may be required. In these types of situations, benefit plans may look slightly different than the core policy generally, local plans will result in richer coverage while the core global policy is the catch-all for coverage elsewhere in the world. As an example, if a US employer sends a Brazilian employee on an expatriate assignment to Abu Dhabi, the core policy is likely to be US-based, but an underlying Abu Dhabi plan will comply with the local regulations. If that expatriate or his/her covered dependents seeks care in Brazil, the core policy would cover the insurance claim. Here is a sampling of local regulations by region that affect expatriate health insurance coverage, and may impact the mobility of international assignees if compliance requirements are not met. Asia Pacific Australia Australia operates a universal medical coverage system called Medicare. The approach is symbiotic using both public and private vehicles, with partnership between the two actively encouraged. When global companies send expatriates to Australia, applying for health insurance is a critical part within the process of obtaining a long-term visa, known as a 457 visa. More importantly, the health insurance provider must be recognized in Australia, meaning that not all expatriate plans will be applicable. This coverage is required for all members of the family relocating to Australia and should be maintained for the duration of stay in the country. Failure to put this in place is a breach of mandatory visa requirements. There are certain reciprocal agreements that can influence what level of cover an expatriate requires in Australia; for example, expatriates relocating from the UK qualify for medically essential coverage via Medicare for the entirety of their approved visit. This is in line with how the European Health Insurance Card (EHIC) system operates. China China has one of the most complex regulatory environments in the world and therefore care should be taken when exploring expatriate solutions for members in China. Although the country is still in the process of developing a full national health system, there are plenty of public hospitals and clinics available, especially in Tier 1 cities; these are accessible by both locals and foreigners. Expatriates may not be comfortable accessing care in a public hospital and may seek it in a Western-style hospital catering to expatriates in terms of languages and delivery. Local Chinese plans are structured quite differently to traditional Western ones and can be difficult for expatriates to navigate. Therefore, the majority of multinational organizations choose to provide expatriatestyle coverage to their members in China. An underlying locally-admitted plan needs to be in place to conform with Chinese regulations. Insurers who operate in China will have a partnership in place with a local Chinese insurer or administrator which ensures that local regulations are met and scheme administration and claims are settled efficiently and in a compliant fashion. Hong Kong Hong Kong is a Special Administrative Region (SAR) within China. However, this does not mean that requirements are similar in fact, regulatory requirements in Hong Kong are far simpler and easier to manage than those in China. Hong Kong has some of the best medical facilities in the world, as well as hospitals and doctors who lead the field in surgical practice and new therapies. However, combining this and the small geographic area of the SAR (there are currently only 13 private hospitals to choose from) means that the cost of medical treatment is high; Hong Kong is the most expensive place in the world to see a cardiologist. Therefore, although regulatory requirements may be relatively simple to circumvent, it is crucial to ensure that the design of members medical plans is adequate and suitable for the SAR. An example of this is directbilling for outpatient therapies while this is not a key issue in regions such as Western Europe, it should be a significant consideration in Hong Kong. Europe Managing expatriates in most parts of Central and Western Europe can be complicated and time-consuming. This is because there is no standard practice across these nations, and there are varying regulations around levels of cover that expatriates must have in place. Minimum healthcare insurance requirements are common in order to obtain a work visa and certain countries have individual requirements for health insurance. Many countries require insurance and associated certification to be issued in-country. This makes the role of the expatriate insurance provider even more important one must always ensure that carriers are at the forefront of regulatory changes and requirements, to ensure that members are adequately and compliantly covered wherever they may be in Europe. As an employer with staff working in Europe, it is particularly important to understand the demographic and where potential regulatory issues may arise. Most holders of an EU passport can access essential public treatment across member nations, through EHIC. Others whose countries of nationality have reciprocal agreements with certain European nations may also qualify for a certain level of coverage. Germany Germany is a country worth mentioning in particular. Health insurance is mandatory in Germany and any resident must have locally compliant cover, whether through the public system or through a regulated private insurance provider. The health insurance reform of 2007 saw the government implement a new law which made insurance mandatory for everybody living in Germany, whether local national or expatriate. All German residents who are not part of the compulsory state health insurance system are expected to hold a health insurance policy that meets the minimum requirements. Czech Republic All members of the working population, whether employed or self-employed, are obliged to contribute a percentage of their income to a health insurance fund. Such funds are independent of government but serve as a 5

7 collection and dispersal mechanism for national health insurance funding. It is important to ensure the provider of expatriate insurance for members in the Czech Republic has the appropriate insurance license, to ensure plans meet local requirements. Netherlands Health insurance is compulsory in the Netherlands for both residents and expatriates. Dutch tax payers are required to contribute to the basic scheme through a local insurance provider and are free to choose one of any number of carriers, all offering basic coverage. Care should be taken with expatriates, as foreign-based insurance rarely satisfies the Dutch requirements, and if insurance is not taken within a certain timeframe, their residence may be at risk. Switzerland Switzerland is divided into 26 cantons, which are separate federal states. Each canton has individual minimum healthcare benefit regulations with which residents must comply. Therefore, inbound expatriates with international medical insurance need to ensure their coverage meets the minimum requirements stipulated by the canton in which they will reside. What many organizations will do, especially those with an employee base spread across multiple cantons, is to ensure the cover they offer is comprehensive enough to comply with the prerequisites of all cantons. Coverage will be considered on an individual basis for each employee entering Switzerland and many experienced expatriate insurers are familiar with the requirements of the principal cantons where expatriates are assigned. Gulf Cooperation Council The Gulf countries are host to the largest expatriate populations worldwide, comprising 200 nationalities, corporate expatriates as well as expatriate laborers which represent above 80% of the workforce in many countries. It comes as no surprise that countries in this region have developed specific legal requirements for expatriates. Saudi Arabia and the UAE have implemented strict requirements, and other GCC countries are following suit. Saudi Arabia The compulsory health insurance for expatriates provided for under the Cooperative Health Insurance Law is subject to a minimum conditions policy wording issued by the CCHI *. A certificate, usually in Arabic, is required for visa purposes for expatriate employees and their dependents. Additionally, Saudi Arabia requires that expatriates have a minimum level of coverage and a 100% coverage plan design for medical care is often required. Expatriate plans originating from other countries may find this level of coverage to be more generous than their existing benefits. It is advisable to use an expatriate provider with either a presence or partnership in Saudi Arabia, to ensure the requirement for regulatory documents can be handled appropriately and in a timely manner in-country. United Arab Emirates Laws in both Abu Dhabi and Dubai require a special approach to offering coverage to expatriates working in these Emirates. Both Emirates require locally-admitted insurance companies and policies to be in place for residents there, though Dubai does not yet actively enforce this requirement for expatriates working there. The stringent and variable requirements for compliant health insurance stipulated in each Emirate makes offering a global expatriate plan more complex. In certain Emirates renewals must be confirmed and filed no less than 30 days prior to the scheme s renewal date; membership cards may require photographs and/or signatures; certain documentation needs to be in Arabic. These are just some examples of complexities faced in the UAE and why organizations require so much prerenewal planning in this region. A PUZZLE THAT CAN STILL BE SOLVED With constantly evolving regulations that vary from country to country, employers are challenged to ensure their expatriate health plans are compliant both at home and abroad. This means selecting a global insurance partner that offers expertise in compliance requirements, while also offering comprehensive, consistent coverage and service. According to Brian Iaia, General Counsel for UnitedHealthcare International: The global regulatory environment affecting both U.S. and non U.S. insurers continues to rapidly evolve. Having knowledge of insurance and health care laws of all countries is key to ensuring proper compliance, implementation and administration of international plans. In the U.S., one of the most important considerations is whether international insurance plans are subject to and compliant with PPACA. An international plan will likely be subject to PPACA: (i) if the insurance issuer is licensed or required to be licensed in a US state to provide such insurance or (ii) if such plan is considered an employee welfare benefit plan under ERISA. UnitedHealthcare International recommends coverage for US expatriates and inpatriates be offered via a US-issued expatriate policy that complies with the new legislation. Although PPACA and other regulations have made global coverage a more complex puzzle, to date it is a puzzle that can still be solved. The author would like to acknowledge the assistance of Catie Trombley, Lockton Benefit Group, Washington, D.C., Rohan Muralee, Lockton Asia Pacific, Hong Kong, and Pam Enright, GPHR Lockton Benefit Group, Kansas City, in the preparation of this section of the Report. * Council of Cooperative Health Insurance Copyright Pension Publications Limited Reproduced from Benefits & Compensation International, Volume 43, Number 6, January/February Published by Pension Publications Limited, London, England. Tel: Fax: Website: Produced by The PrintZone ( Prior written permission required to reprint in bulk. 6